Journal of Labor Economics Vol. 4 No. 2 1986
Compensating Differentials for Cyclical and Noncyclical Unemployment: The Interaction between Investors' and Employees' Risk Aversion
Abstract
This paper integrates the labor and assets markets equilibria to determine and evaluate the wage differentials generated for cyclical and noncyclical risks of unemployment. The relative wage differential is a linear function of unemployment risk measured by the covariance of an index of employment with the rate of change in aggregate output. Seniority and the hoarding of skilled labor are characteristics of minimum cost contracts because employees with more human capital prefer safer jobs. Empirical results suggest that a 14%-41% wage differential can be explained by interindustry differences in unemployment risks.
- DOI
- 10.1086/298104
- Volume
- 4
- Issue
- 2
- Pages
- 277-300
- Language
- en
- Sources
- openalex crossref